Impact of Merging Between Digital Platforms a Case Study Of

Home , Gojek, Tokopedia, Unicorn (finance)

Impact of Merging between Digital Platforms

A Case Study of Tokopedia and Gojek OUTLINE

Introduction The Impact of Tokopedia- and Study Aims Gojek Coexistence on District- Level Economic Performances

The Contribution of The IPO of Tokopedia and Tokopedia-Gojek Merger on Gojek Merger the National Economy

2 BACKGROUND

• The merger of two unicorn companies, Gojek and Tokopedia, will create an Indonesian internet behemoth that will dominate the sectors of ride-hailing, digital payments, online shopping, and delivery. • The merger of these two unicorn startups in Indonesia is expected to generate a valuation of up to USD40 billion or equivalent to IDR560 trillion* (Bloomberg Asia, 2021). • Following the merger, it is expected that Tokopedia and Gojek will expand their businesses by listing initial shares (IPO) on the Indonesian and United States (US) stock exchanges. • E-commerce applications and transportation services are expected to have a significant impact on the overall economy.

*around Rp14.000/ USD 3 OBJECTIVE

General Objective: Fulfill the need for impact research on the impact of e-commerce on the economy to provide better information to relevant stakeholders.

The analysis in this study will focus on value creation after the merger of Tokopedia and Gojek. Specific Objective:

• Estimating the impact of the Tokopedia- Gojek coexistence on the economy of districts and cities

• Calculating the contribution of the merger of Tokopedia and Gojek to the National economy

• Identifying the impact of the IPO of merger between Tokopedia and Gojek

4 The Impact of Tokopedia-Gojek Coexistence on District-Level Economic Performances

5 ECONOMETRICS ESTIMATION METHOD (1)

Estimation methods used in estimating the Estimation methods used to test for the macroeconomic impacts of Gojek-Tokopedia robustness of the analysis: coexistence (2010-2019):

Two-way Fixed Effects (TWFE) with Group-Time Average Treatment on Two-way Fixed Effects DiD 1 Treated (ATT) Estimator 1 (Sant’Anna & Callaway, 2020) The common/simple method of estimating average The optimal approach to measure the dynamic impacts throughout 2010-2019 impact during pre- and post-Tokopedia entry

Instrumental-Variables (IV) Two-way Fixed Effects Event Study The optimal approach to estimate the impacts of 2 2 To investigate the dynamic impacts during pre- and Gojek-Tokopedia coexistence on savings account post-Tokopedia entry ownership and digital entrepreneurs.

6 ECONOMETRICS ESTIMATION METHOD (2)

• The main variable used in the econometric analysis is the dummy variable indicating the coexistence of Gojek and Tokopedia – not “intensity of presence” • The researchers investigate the impacts of the coexistence on several key macroeconomic indicators:

1 2 3 4 5 6 Transportation Accommodation LF Participation and GDP GDP per Capita Inflation Sector GDP and FnB GDP Unemployment

7 8 9 10 11 Percentage of Household Percentage of Households with Number of Poverty Rate Consumption Households with Savings Account Insurance Entrepreneurs Levels Ownership

• Data used in all four model is macroeconomic data that is aggregated at the district level throughout the period 2010-2019 • The research team also provides assessment of non-causal relationship between COVID cases and the presence of Gojek-Tokopedia

7 GOJEK-TOKOPEDIA NATIONAL PENETRATION (1)

Source: LPEM-Tokopedia Study (2019)

8 GOJEK-TOKOPEDIA NATIONAL PENETRATION (2)

Source: Various news outlets and/or other media sources, compiled by the research team (2021)

9 GOJEK-TOKOPEDIA NATIONAL PENETRATION (3)

Source: Various news outlets and/or other media sources, compiled by the research team (2021)

10 The Impact of Gojek-Tokopedia Coexistence on Macroeconomic Outcomes Unemployment Rates, Work Participation, Poverty Rates, Household Consumption, and Health Insurance (1)

Group-Time ATT dan IV Estimates • A strong and significant impact was seen on Variables All Districts Regencies Cities poverty rates: throughout the period of 2010- 2019, the presence of Gojek and Tokopedia has helped reduce poverty rates, especially Unemployment Rates 0 p.p 0.002 p.p -0.001 p.p among the regencies (by 0.443 p.p)

• On the other hand, we do not observe Employment to 0.003* p.p 0.002 p.p 0.0001 p.p significant impacts on unemployment rates Population Ratio • One conclusion that can be drawn is that the coexistence of Gojek and Tokopedia has Poverty Rates -0.244** p.p -0.443** p.p 0.082 p.p drawn workers from low-paying jobs to higher-paying ones, but the coexistence has not drawn those who were previously Household Consumption -0.002 p.p -0.002 p.p 0.008 p.p unemployed Levels

*, ** indicate significance at 5% and 1%, respectively

The limited impact is attributable to the fact that the Gojek-Tokopedia penetration might not have reached critical mass and network effects that are needed to generate substantial macroeconomic impacts. A merger between Gojek-Tokopedia might help augment the impact. 11 The Impact of Gojek-Tokopedia Coexistence on Macroeconomic Outcomes Unemployment Rates, Work Participation, Poverty Rates, Household Consumption, and Health Insurance (2) • The researchers found that the Gojek-Tokopedia coexistence has not exerted impacts on inflation; Group-Time ATT dan IV Estimates if any, the effects are negative, consistent with the digitalization effects observed in Cardona et al Variables All Districts Regencies Cities (2015), wherein they observed that the existence of digital platforms can contribute to reductions in Inflation -0.002 p.p -0.008 p.p -0.006 p.p price variability across regions

Insurance Ownership (% 1.668 p.p 0.602 p.p 3.45* p.p • Additionally, the Gojek-Tokopedia coexistence has of HH) been observed to increase the number of entrepreneurs, internet and marketplace Number of Entrepreneurs 2,3%** 1% 3,3%* entrepreneurs by 2.3%, 0.22 and 0.03 bps, respectively. We see that Gojek-Tokopedia has lowered entry barriers, and this has led many to Share of Digital 0,22** p.p become entrepreneurs Entrepreneurs† Share of Marketplace 0,03** p.p • Significant impacts are also seen on the increase in Entrepreneurs† household insurance ownership rates, especially among cities (which saw the rates increase by 3.45 Savings Account Ownership (% 0,9** p.p - - p.p) of HH) † • Although the broad macroeconomic implications *, ** indicate significance at 5% and 1%, respectively of Gojek-Tokopedia coexistence are still rather † estimation was implemented using the instrumental variables (IV) method limited, our study suggests evidences that the impacts tend to augment over time

Group-Time ATT dan IV Estimates • The study has found that the impact of Gojek-Tokopedia coexistence on district Variables All Districts Regencies Cities GDP is still limited; the strongest impact is seen on GDP per capita and GDP 2.3% 2.8% 1.5% transportation / storage GDP

GDP Per Capita 2.7% 3.4% 1.8% • The coexistence of Gojek-Tokopedia has reduced Accommodation and FnB GDP in cities, by 2,6%; it is arguable that Accommodation and 2% 3.6% -2.6%** Gojek-Tokopedia has diverted businesses FnB Sector GDP to informal sectors. Hence, contributions from these informal sectors are not Transportation and 2.9% 3.9% 1.2% perfectly recorded Storage GDP

*, ** indicate significance at 5% and 1%, respectively

The average impact on district-level GDP is somewhat substantial if one considers the fact that Tokopedia and Gojek had operated in 195 districts/cities, or with an estimated GTV of around IDR 1.5B per districts/cities 13 THE ASSOCIATION BETWEEN GOJEK-TOKOPEDIA COEXISTENCE WITH COVID-19 SPREAD

A simple regression analysis suggests that there is no strong relationship/association between the coexistence of Gojek-Tokopedia with the spread of COVID-19. The combined presence of Gojek-Tokopedia is not associated with lower/higher amount of COVID-19 cases. We argue that this lack of relationship is attributable to the social distancing measures enacted by the authorities.

14 The Contribution of Gojek- Tokopedia's Merger on the National Economy

15 ANALYTICAL FRAMEWORK

Vertical Integration Vertical integration increases efficiency at the new corporate entity MERGER OF level and lowers costs imposed on users TOKOPEDIA AND GOJEK Functional Integration Functional integration increases efficiency at the merchant / partner user level and lowers production costs

Source:

- Fan, J. P. H. and Goyal, V. K. (2006) ‘On the patterns and wealth effects of vertical mergers’, Journal of Business. doi: 10.1086/499141. - Kim, H., Lee, D. and Ryu, M. H. (2018) ‘An optimal strategic business model for small businesses using online platforms’, Sustainability (Switzerland). doi: 10.3390/su10030579.

16 INTEGRASI VERTIKAL

Scope Economies

• Savings originating from the joint production of different kinds of services • Example: buying from Tokopedia and delivery with GoSend

Economies from Vertical Integration

Economies of scope originate There are strong from joining various There are considerable technological production stages in the needs for coordination interdependencies production of a single good or and adaptation across between production service in an industry stages and distribution stages characterised by several successive production stages

There could be diseconomies of scope from integration

• Happens with large institutions, where the provision of services is already too complex (for example, due to the network complexity) and where bureaucracy might be relevant 17 INTEGRASI FUNGSIONAL

More efficient business model Easier to Enhances the manage one Lower Less effort seller's channel due to production cost productivity merger Lower operational cost

• The integration and convenience offered by the new platform also could attracts conventional MSMEs to use online platforms and creates efficiency. • The new platform also has an integrated community of users and partners (pooling community).

18 SURVEY

Stratified Random Sampling Ride-hailing users Non-ride-hailing Category of users (consumers, driver, users SMEs) 936 Income groups Respondents Location (Java – Outside Java)

TARGETING 3 TARGETING 6 Customers of e- Customers of e- Commerce Non-customers Commerce Non-customers of e-Commerce of e-Commerce

TARGETING 2 TARGETING 5 TARGETING 1 TARGETING 4

Frequently using Frequently using Frequently using Frequently using sameday/instan sameday/instan regular delivery regular delivery delivery delivery

19 POTENTIAL VALUE CREATION OF MERGER

TARGETING 1: Increase in the number of new users using sameday delivery TARGETING 4: Increase in the number of new users using sameday delivery Ride-hailing Non-ride-hailing users and users, but Purchases increase as the number of new ride-hailing users increases customers of e- Purchases increase as the number of new digital wallet users customers of e- Commerce, increases Commerce, frequently frequently using Purchases increase as the number of new digital wallet users increases using a regular a regular delivery delivery Financial service revenue increases with the increase in digital wallet transactions Financial service revenue increases with the increase in digital wallet transactions TARGETING 2: Purchases increased due to lower sameday delivery costs and TARGETING 5: Purchases increased due to lower sameday delivery costs and increased Ride-hailing increased use of sameday delivery Non-ride-hailing use of sameday delivery users and users, but Purchases increase as the number of new ride-hailing users increases customers of e- Purchases increase as the number of new digital wallet users customers of e- Commerce, increases Commerce, frequently frequently using Purchases increase as the number of new digital wallet users increases using instant/sameday instant/samed Financial service revenue increases with the increase in digital delivery Financial service revenue increases with the increase in digital wallet ay delivery wallet transactions transactions TARGETING 3: Increase in the number of new users using sameday delivery TARGETING 6: Increase in the number of new users using sameday delivery Ride-hailing Non-ride-hailing users, but non- users and non- customers of e- Purchases increase as the number of new digital wallet users customers of e- Purchases increase as the number of new digital wallet users increases Commerce increases Commerce Financial service revenue increases with the increase in digital Financial service revenue increases with the increase in digital wallet wallet transactions transactions Purchases increase as the number of new merchants increases Purchases increase as the number of new merchants increases

20 SURVEY RESULTS The potential additional transactions as well as the number of new users and merchants due to the merger between Tokopedia and GOJEK: 1,3 million Increase in Tokopedia's user transactions transactions

20,4 million Increase in Tokopedia's user delivery transactions with transactions instant/same day delivery

2 million Increase in GOJEK's user transactions transactions

3,9 million users GOJEK's new users

9,1 million users Tokopedia's new users

15,2 million users E-wallet's new users

589 thousand Tokopedia’s new merchant merchants 21 Stimulus of the potential contribution from the Tokopedia- GOJEK merger on the Indonesian DISBURSING OF STIMULUS IN INPUT-OUTPUT TABLE economy 1 2 Merger of Tokopedia and Sectors Stimulus is Gojek disbursed into Scenario Scenario Scenario economic • Wholesale and retail I II III Stimulus sectors • Food and beverage service • Scenario 1: Rp17,7 Triliun (restaurant) • Scenario 2: Rp24,8 Triliun • ICT Average amount of • Scenario 3: Rp34,4 Triliun • Financial services Tokopedia and GOJEK new users' 15% 30% 50% Computed into IO Table transaction value (% to existing users' transaction value) 4 3

Multiplier effects Potential Calculated into economic additional 1. Value addition (GDP) transactions or 17,7 24,8 34,4 indicators 2. Household incomes Stimulus (IDR trillion) 3. Job creation

Sectoral lingkages

22 TOKOPEDIA-GOJEK MERGER’S CONTRIBUTION ON INDONESIAN ECONOMY

Scenario I Scenario II Scenario III

Contribution to GDP 20,6 28,8 39,8 (Rp Triliun)

Nominal GDP in 2019 15.832 15.832 15.832 (Rp Triliun)

Share to GDP 0,1% 0,2% 0,3% (%)

Job Creation 200,8 280,1 385,9 (thousand)

Household Income Creation 6,3 8,8 12,2 (Rp Triliun)

23 SUMMARY Contribution of the merger of Tokopedia and Gojek to the national economy LIMITATION OF ANALYSIS

Results of survey shows the There is potential stimulus The Input-Output model is a static model in the sense that it value creation of almost all of IDR 17-34 trillion to the portrays the contribution of the merger at one point in time. Tokopedia and Gojek’s economy from the merger business lines from the of Tokopedia and GOJEK. merger. Extension to which the assumptions used in this The pre-merger study is contribution of Tokopedia realised during The merger is expected to was 1.1% (LPEM FEB UI, the merger contribute to Indonesia's The dynamics of the 2019) and Gojek was 0.7%* national GDP at around 0,1- contribution of the Structural changes in (LD FEB UI, 2019) to the 0,3% of GDP. merger to the economy the Indonesian national GDP or a total of depend on several economy in the future 1.8% of the national GDP. factors: Changes on the The moderate 0.2% course of The merger between competition in contribution from the Tokopedia and GOJEK the market that merger of Tokopedia and may affect the would provide an overall Gojek became an additional contribution contribution at around 1.9- 10% of the contribution of 2.1% of GDP. the two pre-mergers..

**Gojek's contribution or overall added value to the national economy in 2019 is IDR 24 104.6 Trillion (Gojek's output in the economy is around IDR 152 Trillion) The IPO of Merger between Gojek and Tokopedia

25 COMPANIES LISTED ON THE INDONESIA STOCK EXCHANGE INCLUDED IN IDXTECHNO (1)

No. Company Listing Board Listing Date Subsector Notes

1 PT Anabatic Technologies Tbk. (ATIC) Main Board 08 Jul 2015 Software and ICT Services Sector

Acceleration Board 2 PT Cashlez Worldwide Indonesia Tbk. (CASH) 04 May 2020 Software and ICT Services Sector

3 PT DCI Indonesia Tbk. (DCII) Development Board 06 Jan 2021 Software and ICT Services Sector

4 PT Distribusi Voucher Nusantara Tbk. (DIVA) Development Board 27 Nov 2018 Software and ICT Services Sector

5 PT Digital Mediatama Maxima Tbk. (DMMX) Development Board 21 Oct 2019 Software and ICT Services Sector Startup

6 PT Indointernet Tbk. (EDGE) Development Board 08 Feb 2021 Software and ICT Services Sector

Development Board 7 PT Envy Technologies Indonesia Tbk. (ENVY) 08 Jul 2019 Software and ICT Services Sector

Development Board 8 PT Galva Technologies Tbk. (GLVA) 23 Dec 2019 Hardware and Technology Tools Startup

9 PT Hensel Davest Indonesia Tbk. (HDIT) Main Board 12 Jul 2019 Software and ICT Services Sector

10 PT Kioson Komersial Indonesia Tbk. (KIOS) Development Board 05 Oct 2017 Software and ICT Services Sector Startup

26 COMPANIES LISTED ON THE INDONESIA STOCK EXCHANGE INCLUDED IN IDXTECHNO (2)

No. Company Listing Board Listing Date Subsector Notes

11 PT Limas Indonesia Makmur Tbk. (LMAS) Development Board 28 Dec 2001 Software and ICT Services Sector

Development Board 12 PT Sentral Mitra Informatika Tbk. (LUCK) 28 Nov 2018 Hardware and Technology Tools

13 PT M Cash Integrasi Tbk. (MCAS) Main Board 01 Nov 2017 Software and ICT Services Sector Startup

14 PT Multipolar Technology Tbk. (MLPT) Main Board 08 Jul 2013 Software and ICT Services Sector

15 PT Metrodata Electronics Tbk. (MTDL) Main Board 09 Apr 1990 Hardware and Technology Tools

16 PT NFC Indonesia Tbk. (NFCX) Development Board 12 Jul 2018 Software and ICT Services Sector Startup

Acceleration Board 17 PT Tourindo Guide Indonesia Tbk. (PGJO) 08 Jan 2020 Hardware and Technology Tools Startup

Main Board 18 PT Sat Nusapersada Tbk. (PTSN) 08 Nov 2007 Hardware and Technology Tools

19 PT Northcliff Citranusa Indonesia Tbk. (SKYB) Development Board 07 Jul 2010 Software and ICT Services Sector

20 PT Indosterling Technomedia Tbk. (TECH) Development Board 04 Jun 2020 Software and ICT Services Sector Startup

Development Board 21 PT Zyrexindo Mandiri Buana Tbk. (ZYRX) 30 Mar 2021 Hardware and Technology Tools

27 IF MERGER OF GOJEK AND TOKOPEDIA TO DO IPO IN OTHER COUNTRIES*

Assumption:

Indicator Tokopedia Gojek

Revenue USD15 million per year USD8 million per year

Valuation USD7 billion USD10 billion

Market capitalization USD35-40

Indonesia Singapore Malaysia US-Nasdaq US-NYSE China Australia Hong Kong**

Development Main board Main board Global Select Not STAR Qualified Not qualified board Market qualified Market

* Based on financial requirements. Other requirement, such as appointment of local resident management may apply. ** Due to nonacceptable overseas jurisdiction

28 DETAILS ON IPO OF MERGER BETWEEN GOJEK AND TOKOPEDIA IN OTHER COUNTRIES

Country Notes

Indonesia Not eligible for Main Board due to profit and net tangible assets requirements.

Singapore Meet the Criteria 3 for Main Board: positive operating revenue (actual or pro forma) in the latest completed financial year.

Malaysia Meet the Market Capitalization Test for Main Board: a total market capitalisation of at least RM500 million upon listing and incorporated and generated operating revenue for at least one full FY prior to submission.

US-Nasdaq Meet the Standard 1 Earnings for Global Select Market: Pretax earnings: ● Aggregate in prior three fiscal years > $11 million; and ● Each of the prior three fiscal years > $0; and ● Each of the two most recent fiscal years > $2.2 million.

US-NYSE Does not meet any Financial Standards for Non-US Companies

China Meet Criteria 2 for Star Market: market capitalization of no less than RMB 1.5 billion

Australia Meet Asset test: A$15 million market capitalisation

Hongkong Not qualified because Indonesia is not in the acceptable overseas jurisdiction to list in Hong Kong.

29 IPO OF SEVERAL TECHNOLOGY COMPANIES

We consider technology companies to be successful after IPO, such as Facebook, Alibaba, and Sea and technology companies that became unsuccessful IPO, such as Lyft, Uber, and WeWork.

General factors for technology companies to have a successful IPO:

• Good management and more adaptable. • Live up the hype (when stock prices overvalued) and defy investor’s expectation towards stock performance (lowering it). • Major support from venture capital as a cash cushion for the company.

General causes of failure IPO:

• Miscommunication of companies’ real condition to the investor. • Stay private too long, resulting in a high valuation that the public market can’t keep up. • Company's performance does not meet investors' expectation. • Corporate governance is unprepared for almost unlimited public scrutiny. • Lack of preparation, while IPO required the establishment of good governance that undertaken long before IPO.

30 WHAT CAN WE LEARN FROM FACEBOOK, ALIBABA, AND SEA?

Profit, revenue, market capitalization, These companies are more active to and active users of the company grow expand their business by investment or considerably high after its IPO. acquisition.

Employees who owned company’s stock before IPO, they become Allow for innovation with its nearly millionaires and flexibly buy or sell the unlimited raised capital. stock.

31 The Impact of IPO in Investment Climate CASE STUDY: GOOGLE DAN STAR MARKET

• In 2004, Google went public, putting an end to a four • Established in July 2019 with an aim to help the growing number of China’s technology and innovation enterprises to raise funds in year lull in technology offerings following Dot-com the domestic capital market bubble. • It has accommodative listing requirements, including allowing the • Google’s filing for public offerings may provide a boost listing of companies that are not yet profitable, less focused on for other technology companies seeking to raise public assets, cash flow and net income, a market value of no less than funds. More than two dozen high-tech companies filed RMB1 billion, a differentiated voting right structure, and A pilot for IPO in that same year. registration mechanism to streamline the listing process • It demonstrates the impressive growth for which • Achievement: technology companies generally have the potential. • Just over a year of its establishment, 200 new companies have joined STAR Market • It serves as a public statement that enticed • The amount of foreign investment in the Star Market has investors back to the technology sector. surged from 270 million yuan at the end of 2019 to 5.64 billion yuan at the end of November 2020 • Has remained resilient in the face of the Covid-19 outbreak. 32 BENEFIT DAN CHALLENGE OF MERGER DAN IPO

BENEFIT CHALLENGE

Merger IPO Merger IPO

• Technology and talent • Unlimited source of capital to • Integration • Maintain post-IPO assimilation support business expansion • High growth expectation performance • Expanding customer base • Improve corporate image • Increasing/ diversifying • Implementation of good • Retaining key talent • Maintain control of the products or service; corporate governance • Noncompliance with Anti- founders with the current • Gain entry to a new • Tax incentives Monopoly Law stock classification model demographic/ geographic area • Investment spillover from • Stricter rules, e.g. • Lower operational costs domestic and foreign investors financial audits • Efficiency • Macroeconomic volatility

33 TERIMA KASIH

Lembaga Penyelidikan Ekonomi dan Masyarakat Fakultas Ekonomi dan Bisnis Universitas Indonesia (LPEM FEB UI)

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